Fei Protocol Discord Was Not 'Seized' Amid Class-Action Lawsuit, Says Lawyer

An attorney representing the plaintiffs in an ongoing class action lawsuit against DeFi project Fei Labs said that the platform's Discord server was not seized by authorities last week as previously reported. Instead, the widely covered notice was intended to spread the word to investors negatively affected by its shaky launch event two years ago.

On Friday, Crypto Twitter shared screenshots of a legal notice posted on Fei's Discord server that was issued by the Superior Court of San Francisco. The notice, referencing a legal NFT airdropped into the wallets of investors, informed users that they can apply to get a slice out of a multimillion-dollar preliminary settlement reached in the case. 

Some observers characterized the move as a seizure of the Discord server, but a plaintiffs' lawyer told Decrypt that this was not the case. Instead, they said Fei Labs worked with a settlement administrator to post the notice.

Fei Labs did not reply to Decrypt’s request for comment.

In a message published on their website, Fei Labs said that its Tribe DAO and Fei Protocol are no longer under development, and urged users to withdraw any funds they held in Tribe DAO-related contracts.

Fei Labs Raised Almost $1.3 Billion for Decentralized Stablecoin—Now Some Investors are Stuck

The ‘Genesis’ launch of Fei Labs’s stablecoin protocol on Saturday raised 639,000 ETH, or $1.3 billion at the time of writing. The launch has been described by some analysts as the “biggest launch in DeFi history.” But the token design makes it far easier to plug funds into the protocol's ecosystem than withdraw them. Biggest launch in Defi history? @feiprotocol raised $1.2B from its Genesis event, and the $FEI - $TRIBE pool is #1 on Uniswap with $2.6 BILLION in liquidity. Simultaneously, retai...

The settlement notice is the latest episode in a saga that began two years ago when Fei Labs first issued its namesake algorithmic stablecoin Fei and its governance token Hunt in April 2021. An algorithmic stablecoin uses incentives to keep the coin pegged to the value of a fiat currency, in Fei's case, the U.S. dollar. 

Fei's token was unique due to its use of software that penalized anyone trying to sell it below its peg, while rewarding those who bought it below the peg. A bug emerged during the launch that left the tokens beneath their peg, but the developers still managed to raise nearly $1.3 billion from Fei and Tribe. 

$1.2 Billion Stablecoin Project Fei Stumbles Out of the Gate

The launch of any experimental DeFi protocol is going to be risky. But when you mix together a strong dose of complexity, an irksome bug and a lot of money, it’s a potentially explosive combination. Algorithmic stablecoin Fei is the latest DeFi project to undergo a troubled launch. Not only has the coin traded below parity with the US dollar since its $1.2 billion launch—something of an issue for a coin that’s supposed to be pegged to the dollar—a bug has emerged that’s resulted in some users st...

In a class-action complaint filed on April 1, 2022 in a San Francisco court, Fei and four of its developers were accused of selling unregistered securities via these tokens. 

Ultimately, the two sides agreed to a preliminary settlement in May 2023 that meant Fei Labs was not required to admit to any wrongdoing. A nearly $18 million dollar fund was created to cover both notices and fees incurred during the litigation, with all claimants having until October 1 to submit a notice for compensation.

A final settlement hearing is also scheduled to take place on October 27 to consider whether to approve the settlement.